Lessons from Europe's Winners and Losers

On paper, Germany's economy should collapse between now and 2050, as the number of Germans between the ages of 15 and 59 falls to just 33 million from today's 50 million. That's almost as bad as the population decline during the Thirty Years' War (1618-1648), which left wide swaths of German territory empty. The Great Elector, Friedrich Wilhelm I (1620-1688), solved the problem by inviting in French Protestants, who emigrated to Prussia in huge numbers after the revocation of the Edict of Nantes in 1685, as well as Slavs, Jews, and whomever else might be available. German was a minority language in the Berlin of Frederick the Great, and it will probably be a minority language again in twenty years.

Why should Germany thrive while Spain implodes? That's like asking why Facebook is worth a lot and Myspace is worth nothing. It's a winner-take-all world. Countries that do well have to do a few things extremely well. Germany makes the world's best machine tools, some of the best heavy engineering equipment, not to mention autos. German manufacturing dominates innumerable key niches. The Spanish don't do anything well. They haven't done anything well since the Spanish Empire outsourced its manufacturing to Flanders in the 16th century. Germany has a score of marquee manufacturing brands, as well as hundreds of lesser-known quality manufacturers, of which my favorite is Howaldtswerke, a ThyssenKrupp subsidiary that makes the Dolphin class submarines for Israel. Name one world-class Spanish manufacturing brand. There aren't any.

It's not only in manufacturing. With its 82 million people, Germany has a cumulative total of 1,618 Olympic medals. Spain has 50 million people, but only 115 medals. On a per capita basis, that's one eighth as many. Spaniards don't wake up in the morning with the desire to go out and be the best in the world at something. There are hundreds of first-rate Italian firms, most of them small (intentionally so, to keep under the tax radar), and there are plenty of world-class French products. Spain is a bust, which is why it almost certainly will go bankrupt. It lived off the world's most egregious real estate bubble for the past ten years, and now that the bubble's popped, there isn't that much else to the Spanish economy. There are plenty of smart Spaniards, to be sure. They are the ones who will end up working for Germans. There are also plenty of smart Turks, and as Turkey lurches further into Islamism, many of the best Turkish engineers will bail out and work in Germany as well.